Nigeria’s central bank has raised interest rates to a record high of 15.5 percent as it struggles to contain a rise in inflation.
The bank raised its benchmark rate by 150 basis points – the third consecutive rate hike – to combat price pressures that left citizens facing skyrocketing costs for fuel and food.
Central bank governor Godwin Emefiele said after a two-day meeting the committee could not rule out further tightening, adding that it was “necessary” to curb price pressures.
“Inflation has risen aggressively over the past four months. It’s hard for us not to go the aggressive way we have today. This is the best option right now,” Emefiele told reporters at a news conference.
Annual inflation in August was 20.5 percent. Core inflation, excluding volatile food and energy prices, stands at 17.2 percent. The naira currency had weakened sharply to a new low against the US dollar ahead of the interest rate decision, threatening the price of imported products further.
Emefiele said the decision to raise rates was unanimous, but committee members disagreed on the extent of tightening needed. Ten of the committee’s 12 members voted to raise interest rates by 150 basis points, one voted for a 100 basis point increase and the other for a 50 basis point increase.
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Analysts had forecast a modest increase of 50 to 100 basis points.
Virág Fórizs, an African economist at Capital Economics, a research firm, said Nigeria’s central bank was “reluctantly aggressive” and forecast a cut in interest rates early next year.
Many economies are struggling due to the strength of the US dollar and the impact of higher US rates on global borrowing costs.
However, Nigeria’s economic problems have been exacerbated by the lackluster performance of the oil sector in 2022. Africa’s most populous country usually earns more than 80 percent of its foreign exchange from crude oil, but has not benefited this year from rising oil prices due to mass thefts. of an estimated 400,000 barrels per day, underinvestment in infrastructure and the cost of fuel subsidies. Nigeria lost its crown as Africa’s largest oil producer to Angola last month when it produced 1.1 million barrels of crude oil per day, well below its OPEC quota of 1.8 million.
Low oil production has led to a scarcity of US dollars in the import-heavy economy. Imports have become more expensive as companies raise prices to reflect the high cost of buying dollars on the black market, where it trades freely and is nearly 50 percent higher than the central bank’s official exchange rate. The Nigerian currency has fallen nearly 25 percent against the dollar on the black market since the beginning of the year.
Nigeria’s decision comes amid rising inflation in West Africa. Ghana is experiencing 33.9 percent inflation, the highest since 2001, forcing the central bank to raise interest rates by 300 basis points to 22 percent during an emergency meeting last month.
Economic uncertainty will be a key issue as Nigeria heads to the polls in February to replace outgoing President Muhammadu Buhari.